WASHINGTON — For the first time, a major U.S. contractor has dropped out of the multibillion-dollar effort to rebuild Iraq, raising new worries about the country's growing violence and its effect on reconstruction.
Contrack International Inc., the leader of a partnership that won one of 12 major reconstruction contracts awarded this year, cited skyrocketing security costs in reaching a decision with the U.S. government last month to terminate work in Iraq.
"We reached a point where our costs were getting to be prohibitive," said Karim Camel-Toueg, president of Arlington, Va.-based Contrack, which had won a $325-million award to rebuild Iraq's shattered transportation system. "We felt we were not serving the government, and that the dollars were not being spent smartly."
Although a few companies and nonprofit groups have pulled out of contracts in Iraq because of security concerns, Contrack's is the largest to be canceled to date, U.S. officials said. The move has led to fears that Iraq's mounting violence could prompt other firms to consider pulling out, or discourage them from seeking work in Iraq, further crippling reconstruction.
For The Record
Los Angeles Times Thursday December 23, 2004 Home Edition Main News Part A Page 2 National Desk 1 inches; 45 words Type of Material: Correction
Iraq reconstruction -- An article in Wednesday's Section A about a U.S. contractor pulling out of Iraq said that a joint venture headed by Contrack Inc. included such well-known U.S. companies as Parsons, Fluor and Halliburton. Those companies are not part of the joint venture.
U.S. reconstruction officials said the termination of Contrack's contract, which was not previously disclosed, would not hamper rebuilding. They said they were planning to put the contract up for rebidding, a process that could take months, and were hopeful that Iraqi firms would participate. So far, most major contracts have been won by U.S.-based multinational firms.
Contrack's partnership was supposed to construct new roads, bridges and transportation terminals in Iraq. It wound up only refurbishing a handful of train depots, company officials said.
Nonetheless, the firm was paid about $30 million during the eight months it was under contract, mostly for site assessments and design work, company and U.S. officials said.
"It's not a terrible loss," said Amy Burns, spokeswoman for the Pentagon's Iraq Project and Contracting Office, which oversees the bulk of the reconstruction work in the country. "It actually may be good that we're both moving on."
But reconstruction experts say Contrack's withdrawal might foretell trouble with other contractors.
""It's a very bad sign," said Michael O'Hanlon, a scholar at the Brookings Institution think tank in Washington who has closely followed the reconstruction process. "If this is how other private companies are thinking, it's a very bad potential warning."
Coming as U.S. reconstruction officials have been touting signs of progress, Contrack's withdrawal underscores the challenges in the $18.4-billion effort to rebuild Iraq.
The effort to revamp the country is considered vital to providing Iraqis with jobs and services and to weakening the insurgency. So far, however, it has been beset with delays, violence, allegations of graft and waste, and frustration among ordinary Iraqis and top U.S. military commanders at the lack of progress.
Contrack's joint venture, which included Egyptian and Swiss firms, also involved such well-known U.S. companies as Pasadena-based Parsons Corp., Fluor Corp. in Aliso Viejo and Houston-based Halliburton Co., once run by Vice President Dick Cheney.
At one point, Contrack and its joint venture had hired nearly 2,000 people in Iraq and had offices in an upper-income neighborhood in Baghdad, said Wahid Hakki, Contrack's vice president for U.S. operations.
But as the insurgency intensified, company workers found themselves increasingly under assault. Small-arms and mortar fire became common at construction sites. Gunmen attacked the joint venture's headquarters about 2 1/2 months ago.
Earlier this year, an Egyptian driver working for the firm was kidnapped. His body was found 12 days later, dumped outside one of the company's construction sites with five bullet holes in the head. A note found on his body said "collaborator."
Unlike such projects as power plants, which can be secured, Contrack's work sites were roads and bridges out in the open. In some cases, Camel-Toueg said, the security expenses for simple tasks such as fixing potholes soared to 60% of the cost of the project. U.S. contracting regulations that required compliance with complex accounting rules further increased overhead.
"It would have been a crime to spend that kind of money to do that type of work," Camel-Toueg said.
The company also found that it was having difficulty with such basic matters as buying construction material. At one site, for instance, the sole supplier of gravel shut his quarry after receiving threats from insurgents about cooperating with Americans, Hakki said. The company's work ground to a halt.
Hakki contrasted the security situation in Iraq with that in Afghanistan, where the company has faced difficulties in its reconstruction work but has made progress.
"In Iraq, the general environment was very, very tough," Hakki said. "We were just not able to do what we were hoping to do. It's definitely a disappointment."
Reconstruction officials declared at a news conference last week that they had reached a milestone: more than 1,000 construction starts out of an estimated 2,500 to 3,000 planned projects.
"Even though the situation is difficult, even though the security environment is not what we'd like it to be, progress is being made," Charles Hess, director of the reconstruction office, said at the conference. He made no mention of Contrack's withdrawal.